Algorithmic trading regulation will protect small investors, analyst says

Financial analyst Bassam Al-Obaid said that regulating algorithmic trading will help control market behavior, protect small investors, and promote fairness and equal opportunities between them and large institutions.

Speaking to Al Ekhbariya TV, Al-Obaid added that small investors do not have access to the same tools as major institutions. He noted that artificial intelligence and technological advancements are progressing rapidly, and the use of algorithms is inevitable. However, to assess the market’s benefit from this decision, it is important to know the source or proportion of liquidity generated by these algorithms.

He explained that during trading sessions with volumes between four and five billion riyals, it is difficult to determine exactly how much of this liquidity comes from algorithmic trading. Nevertheless, he believes regulating algorithms will improve trading activity and will not affect the market’s overall direction, whether upward or downward.

Al-Obaid continued that large financial institutions, both locally and globally, use algorithms and other tools that small investors cannot access, either due to lack of knowledge or inability to afford the costs of running such algorithms or adjusting them to market movements.

He added that, in general, algorithms do not influence the overall direction of the market. For example, if the market is rising, algorithms will not cause it to fall, and if the market is declining, as is currently the case, they will not reverse the trend. However, when liquidity is low or in thinly traded stocks, algorithms can accelerate existing trends, causing orders to change or be canceled rapidly and move in the opposite direction.

It is worth noting that the relationship between algorithms and stock trading has grown stronger, with algorithms evolving from simple support tools to becoming a main driver in managing and directing most modern global financial markets.

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